Peak Credit

UK Consumer Credit Card Amounts Outstanding

The latest figures for consumer credit in the US showed a lower-than-expected increase of $12.4 billion in June. Non-revolving credit, which includes student and car loans, rose by $8.3 billion in June, after climbing by $11.1 billion in May. June’s number is the slowest pace of increase in non-revolving credit for a year. Revolving credit, which largely reflects credit card debt, increased by $4.1 billion after rising $7.3 billion the previous month. As the chart below shows, US consumer credit growth continues to slow down.

USA Consumer Credit Outstanding YoY

The chart displays the annual percentage change of US Consumer Credit since the 1960s. When it is above zero, we can say that credit is inflating and we can see that for most of the last fifty years that has been the case. There have been three bouts of deflation in consumer credit: briefly in 1975, 1991 to 1992 and 2009 to 2010. Each bout of credit deflation has been more intense than the previous. Credit, however, goes through quite regular cycles of inflating at a faster or slower pace; when the line is pointing down, it is still inflating but at a slower pace – a process called disinflation.

The box in the chart highlights that consumer credit has been mildly disinflating since 2015, falling from 7.3% to 5.7% currently. In fact, looking at the long-term, there has been an overall disinflationary trend in consumer credit since the 1980s, when the annualized growth in consumer credit hit 19% in 1984. Each time that consumer credit inflation has accelerated since then, it has been less powerful. It may seem that consumer credit is much bigger now than it has ever been, and that is, of course, mathematically true, but the momentum of that growth has been dwindling.

What message is this giving us? Does it somehow reflect a 30+ years in the making Supercycle degree top in the US, some grand sea change in social mood? Or perhaps it is a reflection of the fact that the American economy is so full of credit that each new cycle cannot achieve the same growth as before. The hype says “consumer credit is a massive bubble,” but looking at the figures from this point of view gives a different perspective. In fact, a subtle generational change in attitude to consumer credit already appears to be taking place.

The waning year-on-year growth since the 1980s fits with a mania that is in its last throes. The chart at the top of this article shows the consumer credit notional amount, and we can make a case for saying that it is in an Elliott fifth wave. The strongest year-on-year growth, however, took place in the first wave during the 1980s. Lower fifth wave momentum is a classic Elliott wave identification tool.

Finally, consumer credit growth in the US appears to have quite a regular rhythm. Our chart below highlights the peaks in each cycle of year-on-year growth and, starting from the peak in 1959, the monthly gaps between peaks has 50 and 72 as the outliers, but the average gap turns out to be 61 months.

If consumer credit growth did peak out in October 2015, we are already two years into the next downturn. And if consumer credit outstanding really is ending a Cycle degree fifth wave, with each bout of consumer credit deflation since 1975 already more intense than the previous one, the next deflation of consumer credit should turn out to be one for the history books.